Euro Cities – Spring 2019

Welcome to the 2019 edition of Gerald Eve’s Euro Cities report.

Gerald Eve continues to expand and strengthen its international alliance to offer our clients a best-in-class service. At the time of writing, Brexit has not come to a conclusion, with no agreement on the withdrawal deal by the British parliament. This has rightly caused concern in many European countries and we have seen lowered growth rates and heightened talk of recession.

There is also unrest with the ‘gilet jaunes’ protests in France, strikes in Portugal and disagreements between various EU members. This is set against the backdrop of global uncertainty as relationships between Russia, the USA, and China worsen and the threat of protectionism and potential trade wars escalate.

Despite all of the above, demand for good quality office space remains high, driven by the expansion of the media and technology sector. Industrial properties are also in high demand across Europe, with changing consumer shopping habits leading to an increase in e-commerce, at the expense of the retail sector.

We hope that you find this report both useful and interesting, and in this ever-changing environment where opportunities need to be grasped, we remain available to assist with your international
property needs.

Economy

The growth of the European economy continued to be weak in comparison to previous years, and whilst economists thought this could potentially accelerate towards the end of 2018, the sluggish
performance of the German economy, which almost fell into recession in the second half of 2018, dashed any hopes of this.

Oxford Economics believe that the eurozone slowdown is being partially driven by transitory factors, namely the German auto industry and more recently the ‘gilet jaunes’ protests in France, and
as a result, some recovery will be seen. However, leading indicators still suggest that momentum in the eurozone remains weak moving into 2019, and GDP is forecast to expand by only 1.5%.

The growth in GDP in 2019 will largely be driven by an increase in household spending. The recovery in eurozone labour markets continues but, with the unemployment rate down to a decadelow
of 7.9%, the pace of job creation is now slowing. Consumer spending weakened in 2018 as households felt the impact of rising inflation on disposable incomes, but lower inflation this year should
provide a welcome boost to real incomes.

Additionally, the fall in the unemployment rate should add an upward pressure on wage growth which will provide further support to household spending. 2019 will also see further growth in fixed investment. Spending on machinery and equipment should continue to be supported by tight capacity and ongoing improvement in bank lending flows to non-financial firms. Activity in construction and real estate is also picking up strongly across many countries, further boosting total investment.

Eurozone exports were hit hard in 2018 by the worsening global environment, with risks posed by rising protectionism and a potential trade war with the US affecting sentiment and orders. In addition, the troubles in the car industry have also exacerbated the impact, especially in Germany. However, there seem to be signs of stabilisation in global trade volumes, and the lagged impact from the strong euro appreciation in 2017 should fade.

However there are various downside risks which could impact investor sentiment. Potentially interest rates could rise more aggressively than expected, which would put an upward pressure
on yields.

The potential of rising interest rates, combined with the fact that we are now late in the property cycle, has amplified the need for secure, long-term income. As a result, many investors will trade
capital growth, which is limited, for rental stability and growth.